No respite, Nigeria to borrow way out of N6trn budget deficit

By PHILLIP ISAKPA & MOSES OBAJEMU

Analyst cautions FG on‭ $‬3.4bn IMF loan‭ ‬

Despite the relief offered by the $3.4 billion facility granted Nigeria by the International Monetary Fund (IMF) under the rapid financing instrument (RFI), Nigeria will have to borrow its way out of a huge deficit finance hole to be able to fund the 2020 budget.

The IMF facility represents only 20 percent of the budget’s deficit of N6 trillion and more funds will be needed to plug this deficit gap. And these are not the best of times for Nigeria’s finances with oil prices having plummeted and the country unable to find buyers, even at huge discounts, for its oil cargoes, the story is not a palatable one right now.

Following the approval of the IMF facility, which many saw as a relief for Africa’s largest economy by gross domestic product (GDP) and the largest in terms of population, some analysts had welcomed but sounded a note of caution, saying it may not offer all the goodies that the country needs and that Nigeria needed to tread carefully in the way it handles the facility.

Uche Uwaleke, an associate professor of accounting and finance and the current head of Banking & Finance Department at Nasarawa State University, Keffi, in a note reacting to the approval seen by business a.m., stated:

“Regarding the COVID-19 credit facility from the IMF, the government should be as wise as a serpent. That the country’s external debt burden has not reached crisis point is apparently due to the fact that much of its $27.6 billion as of December 2019 has come from multilateral sources which are chiefly concessional in nature – long tenor with low interest rate. While an additional soft credit line of $3.5 billion which the government hopes to get  from the World Bank ($2.5 billion) and the African Development Bank ($1 billion) to wage COVID’19 war stands to reason, the same cannot be said of another $3.4 billion loan from the IMF for obvious reasons: First, it is a non-concessional loan with commercial terms being disbursed under the IMFs Rapid Financing Instrument (RFI) which, in addition to a basic interest rate charge, attracts a commitment fee, service charge and a surcharge on outstanding credit. The facility is for a short period, due within three and one quarter years to 5 years, which means repayment will be done in eight quarterly instalments starting Q3 2023, assuming disbursement is made before end of Q2 2020.

“Secondly, except the relevant section is amended by the National Assembly, the IMF loan, unlike the long tenored concessional facilities from the World Bank and African Development Bank, contravenes Section 41 of the 2007 Fiscal Responsibility Act which requires that the government can only go for long term concessional loans for capital expenditure. The RFI of the IMF, under which we are taking the loan, is not designed to finance capital projects but only to address BOP challenges which must be why the condition also states that any country receiving RFI loan is required to cooperate with the IMF in solving its BOP difficulties.

“Against this backdrop and bearing in mind the country’s painful experience with the Fund during the SAP era, the government is expected to make public the full cost implications beyond disclosing that a full-fledged programme with the Fund won’t be necessary. It will also be interesting to know why Nigeria is not going through the IMF Rapid Credit Facility (RCF) window, just like Ghana that accessed $1 billion, considering that financing under RCF carries zero interest rate, has a grace period of 5 and half years and a maturity of 10 years. While the government is encouraged to muster every resource in the fight against the pandemic, entering into a debt trap will clearly jeopardize economic recovery effort post COVID’19,” he stressed.

IMF executive board approved the release of the fund to help Nigeria address the severe economic impact of the COVID-19 pandemic and the sharp fall of oil prices.

Nigeria requested for a $3.4 billion RFI from the IMF in a bid to support both its fiscal and external imbalances. While the facility is a 5-year non-conditional loan, with a 3-year moratorium, the country is faced with a repayment plan of $849.97 million in 2023, $1.70 billion in 2024, and $849.97 million in 2025.

Zainab Ahmed, the minister assured last week that every kobo from the facility would be accounted for while commending the support of the global financial institution.

She noted that the facility would provide financing to Nigeria’s budget, especially on health response in the ongoing fight against coronavirus.

“We appreciate the IMF for its timely response meant to assist us to mitigate the impact of the COVID-19 pandemic on our human population. Nigeria will certainly make judicious use and prudent management of the facility,” Ahmed said

She acknowledged that Nigeria was facing trying times and assured that every line item must count from this IMF facility, adding that the country will continue to welcome and commend the IMF for its strong, and forward-looking commitment to support developing countries’ efforts to restart their economies.

“The IMF financial support will help limit the decline in international reserves and provide financing to the budget for targeted and temporary spending increases aimed at containing and mitigating the economic impact of the pandemic and of the sharp fall in international oil prices,” Ahmed also said.